Also in WSJ.com:

Markets Pulse

Coffee Futures Post Biggest One-Day Jump in a Decade

By Alexandra Wexler

NEW YORK—Coffee prices posted the biggest one-day gain in almost a decade Tuesday after weekend rains in Brazil did little to ease dry conditions in growing areas, fueling concerns about supplies from the world’s largest producer.

Arabica coffee for delivery in March rose 9.1% to $1.5265 a pound on the ICE Futures U.S. exchange, while the more actively traded contract for May delivery closed up 8.8% at $1.5485 a pound. Both contracts had the largest percentage gain since November 2004 and the highest settlement since Jan. 18, 2013. Prices are up 40% so far this year.

Hot, dry weather in Brazil has been interfering with the development of coffee cherries, the fruit that surrounds the seeds that are harvested and roasted as coffee beans. Growers and traders had hoped rainfall over the weekend would increase moisture levels for the coffee trees.

Instead, only about 1 1/4 inches of rain or less fell in coffee-growing areas, not enough to offset the effects of nearly two months of dry weather.

“Ten percent of the crop is certainly beyond repair” at this point, said Shawn Hackett, president of brokerage and consulting firm Hackett Financial Advisors in Boynton Beach, Fla.

Arabica futures will likely rise to $2 a pound in the next few weeks, said Mr. Hackett, who placed futures and options bets on rising coffee prices throughout January. Coffee prices last traded above $2 in March 2012.

The dry spell has many traders and investors reducing their coffee forecasts as they worry about production losses in Brazil, the source of one-third of the world’s coffee. In November, many analysts had forecast the Brazilian crop would be a record for the third consecutive year. But now some analysts and investors are saying global production could fall short of demand this season.

“We’re definitely going to be in a deficit” because of the reduced production in Brazil, Mr. Hackett said.

January and February have been the driest months in Brazil in 30 years, according to Somar Meteorologia, a São Paulo-based private weather service. Coffee trees need at least 20 inches of rain over the first three months of the year to develop normally, but the regions have received between four and 6 inches so far, Somar said.

“We may well be on our way to potentially catastrophic losses,” said Sterling Smith, a futures specialist at Citigroup in Chicago.

The weather outlook for Brazil’s coffee regions calls for continued above-normal temperatures and limited rainfall for the next five days, according to forecaster DTN.

“We have to expect to see a lot of volatility (in coffee prices) in the next week or so” until more is known about the crop damage, said Hernando de la Roche, senior vice president at INTL FCStone in Miami.

This is the seventh session this year that arabica futures have had a 4% or larger move, with six of them as gains. At this point in 2013, there had been one such move.

However, with the rapid rise in prices, a pullback in the market could be imminent, some traders said.

“I still feel like everyone’s just running in, and when it finally falls, it will fall hard,” said Hector Galvan, senior market strategist at RJO Futures in Chicago. “It would be hard for me to think we’re taking coffee to $2 over the next month without having concrete news” on what the damage has been in Brazil.

Growers are likely to begin evaluating how much damage has been done at the end of this month, when the coffee cherries are more developed. The cherries could be smaller than usual, or they could fall from the trees prematurely, due to the lack of moisture, analysts said.